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4. Setting the Target Payout Ratio Residual Dividend Model Methods of Paying Dividends Setting the Dividend Dividends > Setting the Dividend Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance?campaign_content=book_192_section_115&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=di rect&utm_source=boundless

5. The ratio is calculated by dividing Dividends Paid by Net Income for the same accounting period, or Dividend per Share by Earnings per Share. A high dividend ratio appeals to investors who want high current income and are unconcerned with capital gains. A lower ratio appeals to investors who value growth and capital gains over income. In general, the Dividend Payout Ratio of publicly traded companies has steadily declined, on average, since 1940. Setting the Target Payout Ratio Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/dividends-15/setting-the-dividend-115/setting-the-target-payout-ratio-485- 5152?campaign_content=book_192_section_115&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Dividend View on Boundless.com Dividends > Setting the Dividend

6. The Residual Dividend Model implies the Irrelevance of Dividends Theory, which claims that investors are indifferent between returns in the form of dividends or capital gains. Residual Dividends result in a passively-calculated dividend, which changes every year. Since the Residual Dividend Model assumes dividends and capital gains are two forms of the same value, it will not affect the market value. Residual Dividend Model Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/dividends-15/setting-the-dividend-115/residual-dividend-model-486- 1537?campaign_content=book_192_section_115&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Writing a check. View on Boundless.com Dividends > Setting the Dividend

7. The most common method of payment for dividends is cash. This can be either electronic transfer or check to the shareholder, and is taxed when it is received. The dividend can also be paid as new shares of stock. This can either involve newly issued shares or old shares. The most rare method is to distribute property or other assets as the dividend. Methods of Paying Dividends Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/dividends-15/setting-the-dividend-115/methods-of-paying-dividends-487- 1538?campaign_content=book_192_section_115&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Dividend View on Boundless.com Dividends > Setting the Dividend

8. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

9. Key terms capital gains Profit that results from a disposition of a capital asset, such as stock, bond, or real estate due to arbitrage. dividend A pro rata payment of money by a company to its shareholders, usually made periodically (e.g., quarterly or annually). ex-dividend date the first date upon which the buyer of a stock is not permitted to receive the next payment from the company to shareholders interim A transitional or temporary period between other events. proportion A quantity of something that is part of the whole amount or number. Free to share, print, make copies and changes. Get yours at www.boundless.com Dividends

10. Writing a check. Companies usually issue investors a check for their dividend. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "All sizes | Check Writing | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/carbonnyc/2204277278/sizes/m/ View on Boundless.comCC BYhttp://www.flickr.com/photos/carbonnyc/2204277278/sizes/m/View on Boundless.com Dividends

11. Dividend The dividend amount a company will pay out generally depends on its operations and expansion potential. Older, established companies tend to pay higher dividends than younger, growing companies. Free to share, print, make copies and changes. Get yours at www.boundless.com Google. " Google Image Result for." CC BY http://www.google.com/imgres?q=dividend&num=10&hl=en&biw=1275&bih=596&tbs=sur:fmc&tbm=isch&imgrefurl=http://www.bized.co.uk/learn/economics/market s/stockexchange/index.htm%253Fpage%253D3&tbnid=- EMCOv6nRn5DoM&docid=zfaAwyw0jJHskM&ved=0CFwQhRYoAQ&ei=lqCNUPPpO4en0AHn2IDQBA&dur=6867 View on Boundless.comCC BY http://www.google.com/imgres?q=dividend&num=10&hl=en&biw=1275&bih=596&tbs=sur:fmc&tbm=isch&imgrefurl=http://www.bized.co.uk/learn/economics/market s/stockexchange/index.htm%253Fpage%253D3&tbnid=- EMCOv6nRn5DoM&docid=zfaAwyw0jJHskM&ved=0CFwQhRYoAQ&ei=lqCNUPPpO4en0AHn2IDQBA&dur=6867View on Boundless.com Dividends

12. Dividend Cash is one of several ways that a company can pay dividends. Free to share, print, make copies and changes. Get yours at www.boundless.com Blogspot. "DESIRE TO LEARN...: Walter's model VS Market price of the share." CC BY http://cmaanuj.blogspot.com/2012/02/significance-of-walters-model-in.html View on Boundless.comCC BYhttp://cmaanuj.blogspot.com/2012/02/significance-of-walters-model-in.html View on Boundless.com Dividends

13. Free to share, print, make copies and changes. Get yours at www.boundless.com Dividends A company wants to implement a capital growth policy. In the current year it had $10 million in net income. How much income should it distribute in dividends? A) $10 million B) $20 million C) $1 million D) $8 million

14. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Dividends A company wants to implement a capital growth policy. In the current year it had $10 million in net income. How much income should it distribute in dividends? A) $10 million B) $20 million C) $1 million D) $8 million

15. Free to share, print, make copies and changes. Get yours at www.boundless.com Dividends A company made $10 million in revenue. It is interested in pursuing a new project that costs $2 million, but will make them $7 million in the long run. How much should the company pay in dividends under the Residual Dividend Model? A) $8 million B) $10 million C) $3 million D) The company should not pay dividends.

16. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Dividends A company made $10 million in revenue. It is interested in pursuing a new project that costs $2 million, but will make them $7 million in the long run. How much should the company pay in dividends under the Residual Dividend Model? A) $8 million B) $10 million C) $3 million D) The company should not pay dividends.

17. Free to share, print, make copies and changes. Get yours at www.boundless.com Dividends Which of the following is a method of payment a corporation can use to pay a dividend? A) Cash. B) All of these answers. C) Stock. D) Securities of other companies.

18. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Dividends Which of the following is a method of payment a corporation can use to pay a dividend? A) Cash. B) All of these answers. C) Stock. D) Securities of other companies.

19. Attribution Wikipedia. "Dividend policy." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Dividend_policy#Irrelevance_of_dividend_policyCC BY-SA 3.0http://en.wikipedia.org/wiki/Dividend_policy#Irrelevance_of_dividend_policy Wikipedia. "Ex-dividend date." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Ex-dividend_dateCC BY-SA 3.0http://en.wikipedia.org/wiki/Ex-dividend_date Wiktionary. "dividend." CC BY-SA 3.0 http://en.wiktionary.org/wiki/dividendCC BY-SA 3.0http://en.wiktionary.org/wiki/dividend Wikipedia. "Dividend." CC BY-SA 3.0 http://en.wikipedia.org/wiki/DividendCC BY-SA 3.0http://en.wikipedia.org/wiki/Dividend Wiktionary. "interim." CC BY-SA 3.0 http://en.wiktionary.org/wiki/interimCC BY-SA 3.0http://en.wiktionary.org/wiki/interim Wiktionary. "proportion." CC BY-SA 3.0 http://en.wiktionary.org/wiki/proportionCC BY-SA 3.0http://en.wiktionary.org/wiki/proportion Wikipedia. "Dividend payout ratio." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Dividend_payout_ratioCC BY-SA 3.0http://en.wikipedia.org/wiki/Dividend_payout_ratio Wikipedia. "capital gains." CC BY-SA 3.0 http://en.wikipedia.org/wiki/capital%20gainsCC BY-SA 3.0http://en.wikipedia.org/wiki/capital%20gains Free to share, print, make copies and changes. Get yours at www.boundless.com Dividends